Reduction of the public deficit

The crisis the industrialized countries have been undergoing since 2008 is a crisis of indebtedness – excessive indebtedness: it’s less growth, higher interest rates, an unjustified burden imposed on future generations and, ultimately, economic stagnation. Well, we’ve now crossed the debt tolerance threshold.

In this context, the situation of the American economy and the tension over sovereign debt have brought with them a very marked slowdown in growth, particularly in Europe in the second quarter, a slowdown that everyone must take into account. (…) Since 2007, our country has been conducting a policy of structural reforms and control of public spending, and it’s this policy that today means we’re not forced, like many other European countries, to take emergency austerity measures to maintain the confidence of investors and markets. (…)

Of course, in 2008 the global economic and financial crisis led us to increase deficits. (…) As a result of the crisis, in 2009 we went from a predicted deficit of 1.7% to an actual deficit of 7.5%, due to the economic stimulus measures we’d taken, measures to protect spending power among the most disadvantaged and reduced tax revenues caused by the recession. I want to say that we mustn’t regret those choices, because it was those choices and that strategy which enabled us to experience a less severe recession than many other industrialized countries. (…)

The confidence our debt enjoys – it holds the highest rating – confirms the wisdom of our strategy and our choices. That confidence is a precious asset for our independence, so it’s an asset we should protect. The reduction of our deficits – I’ve already had the opportunity to say this several times – is an intangible target. It’s an economic obligation but it’s also a social obligation, because our country can’t live permanently beyond its means. Otherwise, we’d be putting France’s consensus of shared values at risk.

DEFICIT REDUCTION PROGRAMME

We’ve mapped out a path for ourselves: a maximum deficit of 5.7% of national wealth this year, moving to 4.6% in 2012, 3% in 2013 and 2% in 2014, with the final target, of course, being equilibrium. This path commits us, and in particular it commits our European partners in the framework of the stability programme. To respect that path, we’ve set ourselves rules for controlling the growth of public spending, rules we’ve already been respecting for several years and which we’re going to continue respecting in 2012 and beyond. (…)

We mustn’t overreact to daily fluctuations in the markets. Nor must we grow excessively pessimistic when France’s economic fundamentals are solid – as shown, moreover, by the dynamism of business investment. (…)

For 2012, prudence is even more essential, and we’re banking on growth of 0.5% less than initially predicted: that is, 1.75%; so our growth forecasts are identical for 2011 and 2012 – around 1.75%.

TAXATION/SPENDING MEASURES

Obviously, because of these new forecasts, we have a new challenge to face: slower growth clearly means fewer tax revenues for the state, and we must bear this in mind when balancing the public finances. To compensate for the downward revision of these growth forecasts, we’re going to take the measures necessary to comply strictly with our public deficit targets. (…)

By selecting these measures, we’ve taken care not to destroy the engine of growth. So the additional effort proposed will essentially involve new reductions and the elimination of special tax arrangements whose effectiveness or appropriateness no longer justifies their continued existence in a period of budgetary constraint. (…)

We were also guided by a second concern: fairness. We took care to decide on measures that strengthen fiscal and social justice. So the effort will be distributed fairly among households and businesses, but I want to say that more effort will be asked of large corporate groups than from SMEs; likewise, more will be asked of well-off households and the very wealthy than from modest households. (…)

Next week we’re going to present several of these measures to the Council of Ministers, for incorporation into the overall budget that will be debated in parliament at the beginning of September with a view to their coming into force in the autumn. Those measures will bring in just over €1 billion in 2011 and €11 billion in 2012.

On spending, as you’ve already reported, I’ve told ministers to cut spending in 2011 by a total of €500 million and, in the context of preparing the 2012 budget, I’ve decided to work with the parliamentary majority on an additional reduction of €1 billion in spending in 2012. (…)

That, ladies and gentlemen, is what the government will propose to parliament. It’s a stringent policy to enable France to keep her sovereignty on the economic and social level./.

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